Investing.com - Gold prices rallied for a fourth consecutive session on Tuesday as international bond yields continued to fall in response to weak Japanese and European data, ahead of the Federal Reserve's two-day policy meeting.
Gold futures for August delivery on the Comex division of the New York Mercantile Exchange, rose $9.10, or 0.6%, to $1,429.50 a troy ounce by 9:18 AM ET (13:18 GMT), having hit a five-day high of $1,430.50 earlier in the morning. They've now recouped almost all the losses suffered after last week's European Central Bank meeting.
The Fed is widely expected to move forward with a quarter-point reduction to interest rates, its first cut in a decade, when it announces its decision on Wednesday.
Non-yielding bullion, which benefits from lower rates, has been steadily climbing in the run-up to the expected announcement. With fed funds futures pricing odds of the 25 basis point cut at 100%, attention has shifted to just how much resistance the move will receive from within the Federal Open Market Committee.
“Given the sharp differences of opinion among committee members on the efficacy of a rate cut now as opposed to reserving as much monetary firepower as possible for when the current business cycle ends, there will likely be at least one dissenting voice," Joseph Brusuelas, chief economist at consultancy RSM US LLP, said in a morning note.
Market expectations for an even larger 50 basis point cut soared mid-month, but have since pulled back in light of a series of positive economic data, including a slowdown in U.S. economic growth that was not as bad as forecast. Following Wednesday’s expected cut, markets still project another reduction in September with chances for a third decrease in December above the 50% mark.
Investing.com analyst Darrell Delamaide said that the Fed statement and press conference with Jerome Powell will overshadow the rate cut itself.
“The market reaction this week depends a lot on how the committee phrases its consensus message and most of all on how Powell explains the thinking of policymakers,” Delamaide said.
“If he continues to emphasize headwinds and risks to the economy, especially from trade tensions, investors can maintain their belief that further cuts are in store.”
In other central bank news, the Bank of Japan made no changes to interest rates in its decision announced overnight. Although it did revise its inflation forecast lower, it refrained from extending the duration of its promise to keep rates at extremely low levels beyond spring of 2020.
European economic data also supported risk-off behavior to the benefit of the precious metal as German consumer confidence worsened for a third straight month in August and business confidence in the wider euro zone in July hit its lowest in nearly six years. German inflation also fell further and French gross domestic product growth slowed to 0.2% in the second quarter.
All of that, coupled with mounting fears of a disruptive "hard" Brexit, sent French and German bond yields back down to test their all-time lows. The German 10-year benchmark yielded -0.40% by mid-afternoon in Frankfurt, while the French counterpart yielded -0.14%.
U.S. personal income and spending for June were in line with expectations although inflation data, in the form of the core PCE price index, came out lower than expected.
The Conference Board will release its report on consumer confidence for July at 10:00 AM ET (14:00 GMT).
In other metals trading, silver futures gained 0.6% to $16.538 a troy ounce by 9:19 AM ET (13:19 GMT).
Palladium futures dropped 0.2% to $1,550.25 an ounce, while sister metal platinum rose 0.4% to $885.35.
In base metals, copper traded down 1.1% to $2.688 a pound.